Excessive Fee Litigation, 401(k) Plans and LaRue

The current issue of the National Law Journal has an article providing an excellent overview of litigation over allegedly excessive fees charged on investments in 401(k) plans. The article notes the variations in the theories, and discusses what are likely to be large, class wide actions in the near future. There are those who think these types of claims are going away but, as this article suggests, that doesn’t actually look to be the case.

Now connect the dots between that story and the LaRue case, which I discussed here and about which more can be learned here, in which the Supreme Court is being asked to determine whether a single participant in a 401(k) plan can bring a breach of fiduciary duty claim for breaches that harmed only his account. Right now, with regard to the excessive fee issue, we are seeing, as the National Law Journal article reflects, the development of essentially plan wide suits. But if developments in the LaRue case establish that any individual plan participant can sue for breaches of fiduciary duty affecting that participant’s account, that will change. We will instead have a universe of individual participants, all with the capacity to sue over their own account balance and over any complaints they have that excessive fees drove down the balance of their own accounts over the course of years, and I suspect we will see plenty of lawyers appear who are ready and willing to represent individual account holders in such lawsuits. This will create a different litigation world for fiduciaries, plan sponsors, plan administrators and the like, then the current one in which the real risk is large plan wide actions by specialist plaintiff firms. In its place will be more of a death by a thousand cuts type of litigation regime that will confront plan fiduciaries and their allies.

I am not saying this is necessarily a bad thing, or a good thing. It is what it is. But in at least one way it may well be a good thing. We are all bombarded with the mantra that, in this defined contribution plan world we now inhabit, individuals are now responsible for their own retirement, as opposed to when companies provided it by means of guaranteed pensions. Well, I suppose if we are going to make individual plan participants the risk bearers and care takers of their own retirement funding, the least we can do is provide them with the legal tools to protect their investments.